Working in healthcare can be very lucrative. Physicians especially have the potential to come into a lot of money as they work to save and improve the lives of others. As high-income earners, however, these professionals also face high expenses as they acquire a hefty amount of tax liability throughout the year. That, on top of paying back substantial educational dues, can drastically limit their budget.
Fortunately, there are ways to reduce such expenses despite being stuck in a high tax bracket. Below, we’ll go over a few “tax planning” tips to help physicians and other high-income medical professionals save their well-earned money going forward.
First, what does tax planning mean? Essentially, this term refers to the analysis of a person’s or household’s financial situation. The goal is to determine all the elements are working together to achieve the lowest feasible taxes. Often, tax planning requires the help of experts in financial planning services for physicians. These advisors can work with you step-by-step to navigate the complex system and find ways to reduce expenses. That way, you can be well on the track to retirement, feel financially secure and be in the best financial position possible.
There are also tax planning steps you could take on your own. For instance, one of the simplest steps is to take full advantage of the opportunities offered to you through your work or other means, such as maximizing retirement benefits. A great example of this is contributing to a Health Savings Account, or HSA.
Eligible for those enrolled in a high deductible health plan (HDHP) as defined by the IRS, this opportunity allows you to save on taxes for medical expenses. How so? HSA members can contribute to the account with pretax dollars, let the money grow tax free and then distribute it for qualifying medical expenses also tax free. These accounts can be used for you, a spouse and dependents for years down the line.
Another way to cut down on the amount you pay in taxes is to move to a state with no income tax. Although there may be decreased services and governmental support in these states, living and working somewhere where personal income taxes are not levied can put more in your pocket year after year. Currently, there are seven such states offering this including Texas, Florida, Washington and Wyoming.
